If you’re new to cryptocurrency, you’re probably unsure of where to start. Investing in Cryptocurrency has a high probability of paying off big time in the future, which attracts many people to it. But, if you don’t know how to invest, you’ll never get to reap those benefits.
To invest in cryptocurrency, one should first understand what crypto is, research the different types of cryptocurrency, and decide which method of investing in crypto is best for them. These methods include buying directly, mining for crypto, or investing in companies, focused funds, or Roth IRA.
To learn more about how you can invest in Cryptocurrency, and to find out all that you need to know before you invest, continue reading.
What is Cryptocurrency?
Cryptocurrency is a form of currency that is solely digital, and it is made secure through a digital communication technique called cryptography, which allows only the sender and recipient to view the transactions and trades. This prevents any user or outside party from counterfeiting or double spending the currency while making it impossible for hackers to get access to the money. It is also secured with blockchain, which secures all records of transactions so that no bank or third party is needed to keep a record of where and how it is spent or used.
Cryptocurrency also cannot be controlled or interfered with by the government, as of now, because it is not issued by any government agency or central authority and because the information is secure.
Cryptocurrency has value not only because it has a hedge against inflation, but it is scarce (in the same way that gold is scarce), and because it is perceived to hold value by those who trade and use it as a means for purchasing and selling goods.
Cryptocurrency was created so that online payments could be made directly from one person to another without the use of a third-party bank, but the form of currency has evolved with the development of innovations like smart contracts, stablecoins, and non-fungible tokens (NFTs).
What are the Pros and Cons of Investing in Crypto?
Many people are attracted to the idea of cryptocurrency because it cannot be controlled or tracked by a bank or a government agency. Using it to make purchases or sell goods is also appealing because of the fact that money transfers are cheaper, faster, and more secure than traditional currency. It’s secure in that nobody else outside the sender and receiver can view the transactions and nobody other than the receiver will have access to that currency. Cryptocurrency is also secure in that it isn’t affected by any national financial crises due to government failures or economic crashes.
Cryptocurrency is faster to transfer than traditional currency transactions in that they don’t use any third-party intermediaries like a bank or loan facility and because the currency is transferred directly from the sender to the receiver. Flash loans are available to those who need to borrow cryptocurrency, can take as little as a few seconds to enact, and are typically used for trading cryptocurrency and goods.
In addition, cryptocurrency is cheaper in that investments can generate profit over time. If one invests in crypto while the value is still low, the value can double, triple, or even quadruple within a decade. The value is also universal, so this makes it easier for making money transfers across borders, and because it’s direct without the use of a third party, it’s much cheaper to transfer money across borders using cryptocurrency than other forms of currency.
Despite transactions being privatized by governmental agencies and the fact that they don’t need any banks or loan agencies to intermediate transactions, the FBI can still have access to the digital records of transactions. This opens up the possibility that other government agencies can view these records using the same methods in the future, which many critics of cryptocurrency see as a con. Another con is that because the exchange and transactions of cryptocurrency are more private, it incentivizes the transaction of cryptocurrency to be used for criminal purposes.
Another con of cryptocurrency is that outside the secure blockchains, such as cryptocurrency exchanges and wallets, the money can be accessed by others and hacked. Furthermore, anyone can mine cryptocurrency using a computer connected to the internet, but it requires a lot of energy to mine, and for those who want to mine faster, it requires more expensive computer parts that help the computer to work harder and faster.
Lastly, you should keep in mind that cryptocurrency value is very unstable and unpredictable. It’s also more common that cryptocurrency sees a drop in value rather than a rise. The surges and crashes in value happen rapidly, and oftentimes, the crashes can be more significant than rises.
Different Types of Cryptocurrency
To better understand how you can start investing in cryptocurrency, you should gain a grasp of the different types of cryptocurrency. You should also keep in mind that some cryptocurrencies grow more in value than others, while others experience more decreases in value than others. Because cryptocurrencies are decentralized and because they have a variety of economical purposes, there are nearly 20,000 different types of cryptocurrency and counting.
Cryptocurrency can come in the form of coins or tokens. Coins are the actual currency such as bitcoin and altcoin, whereas tokens are assets that are found within blockchains of certain platforms, which include mining-based cryptocurrencies, security tokens, utility tokens, and stablecoins.
A stablecoin has a flat and stable value that only fluctuates by small amounts and only during a high volume of cryptocurrency trading, but will shortly return to its flat value. Tokens represent digital goods and value but aren’t actually valuable in themselves like crypto coins are, but they can still be used for trading and transactions.
Some of the most common and fastest growing types of cryptocurrency are: Binance coin (coin), Bitcoin (token), Ethereum (token), Tether (stablecoin), USD coin (stablecoin), XRP (coin), Binance USD (stablecoin), Cardano (token), Solana (token), Dogecoin (altcoin), Polkadot (token), Dai (coin), Shiba Inu (altcoin), Tron (token), Avalanche (token), Unus Sed Leo (token), Wrapped Bitcoin (token), Polygon (token), Litecoin (coin), and Uniswap (token).
We recommend doing thorough research on some of these types of cryptocurrency to weigh out the pros and cons of them and find which currency you want to buy or invest in.
Buying Cryptocurrency Directly
You can purchase cryptocurrency directly, without the need of investing in a cryptocurrency company, a Roth IRA, or a cryptocurrency-focused fund, which we will discuss later. This form of investment involves using a cryptocurrency exchange. You should keep in mind that some currency exchanges will charge an expensive trading fee, but others have very low trading fees so you won’t pay much more than what you invest.
You’ll first want to research the different types of reliable cryptocurrency exchanges that are reputable and have a large selection of different types of currencies. We recommend visiting the Binance.us site, which you can use to easily create an account, invest manually or automatically on a scheduled basis, and manage your digital wallet and portfolio. You also won’t have to deal with expensive trading fees. Other exchanges include Kucoin.com, gate.io, crypto.com, gemini.com, and bisq. network.
Once you’ve created an account using your personal identification information, you’ll have opened up a digital wallet for your currency and a digital profile. You’ll then have to fund your account using U.S. dollars, which you will have to do before you’ll be able to buy or invest in any type of crypto.
Then, you’ll place an order for whichever cryptocurrency you’ve decided to buy. The purchasing page of the crypto exchange site will walk you through the steps required. When completed, click submit. Once you’ve submitted it, you can view your cryptocurrency balance in your digital wallet, which will be hosted by the crypto exchange company itself or by an independent wallet provider. Here, you can see if the value has increased or decreased over time, and you can get information about your currency for future trades and purchases.
Mining for Cryptocurrency
Mining for cryptocurrency is the most direct way to invest, as you’re not investing in another company to do the mining for you. You’ll need to have a computer with the right software and hardware, and a strong internet connection, but most miners will invest in a high-quality mining rig for their computer which provides more powerful energy to the computer hardware.
Good mining hardware can assist and speed up the mining process, thus generating more profit. Because the equipment can get expensive, you’ll need to ensure whether or not it will be worth investing in that equipment and if you’ll be able to get a better return on investment.
To mine for cryptocurrency, you’ll need a cryptocurrency wallet, a computer with a strong internet connection, the mining software downloaded onto your computer, and the mining hardware necessary for mining which is installed onto your computer. Once you have the correct software and hardware, as well as a digital wallet set up, you can, as a cryptocurrency miner, use your computer to solve cryptographic issues in exchange for digital currency.
By mining for cryptocurrency, you can hold onto the reward you earn from mining, which is in the form of cryptocurrency, as an investment (which will fluctuate and likely increase in value over time), or you can exchange that cryptocurrency for U.S. dollars.
Investing in Cryptocurrency Companies
There are companies that have a partial or full focus on cryptocurrency that you can invest in. Many of these are cryptocurrency mining companies, but some have other purposes but still support cryptocurrency. Companies that support cryptocurrency include Paypal and Robinhood Markets.
You can also reap the same benefits out of investing in companies that make or manufacture mining hardware, and your investments will help them build that hardware and sell to more people, thus the investment will grow as long as people continue to mine. You could also invest in a company that has cryptocurrency as an asset on their balance sheet, such as MicroStrategy inc. Your investment in that cryptocurrency will grow and fluctuate with time, without you having to mine for or invest in cryptocurrency directly.
Investing in Cryptocurrency-Focused Funds
You can also try investing in a cryptocurrency-focused fund, which allows investors to put money towards their fund which goes toward mining for cryptocurrency. There is a wide range of cryptocurrency investment trusts to choose from, as well as exchange-traded funds, which include index funds and future funds.
Exchange-traded funds (ETFs) include ProShares Bitcoin Strategy, Valkyrie Bitcoin Strategy, VanEck Bitcoin Strategy, Global X Blockchain & Bitcoin Strategy, Grayscale Bitcoin Trusts, Bitwise 10 Crypto Index Fund, and Amplify Transformational Data Sharing, among many others.
This method is probably the simplest method for investing, and it’s often a way that many people start out their crypto investment journey. It’s simplest because it’s almost like a traditional investment, which includes a group of investors who pool their money together, a fund manager then takes that money and chooses which securities to invest in, and those securities then generate returns which are then passed back down to the investors.
The only difference is that a crypto-focused fund is for investing in digital currency or other assets in the cryptocurrency market.
Investing in Cryptocurrency Roth IRA
Investing in a cryptocurrency Roth IRA is like any other type of investment, but it has the added benefits of being added to your Roth individual retirement account and the tax advantages that come from having such accounts. When you add your cryptocurrency investment to your Roth IRA, if allowed, it can double as an asset.
The investment in your account will accumulate with time and whatever funds you end up with within a certain amount of time will be added to your account, but it can only be exchanged using cryptocurrency exchanging and transaction methods.
This form of investment is also more secure than other cryptocurrency investments because of this added benefit of tax advantages. You won’t be able to add it to your IRA account directly, but rather through a purchase, which can then be counted as an asset to your IRA if the company allows it.
The reason you can do this is that the IRS began to officially consider cryptocurrency added to retirement accounts as assets and property in 2014. Only a few IRAs, however, will allow you to add crypto purchases to your account. It’s easier to include your bitcoin or cryptocurrency investments in self-directed IRAs, which allow for alternative assets.
To include your crypto investments in your IRA, you can go to a company like BitIRA, Equity Trust, or Bitcoin IRA, which will help you find the best way to include it in your IRA and reap the benefits of having an asset like cryptocurrency on your IRA.
Some IRAs are specifically created for crypto among other assets, and they are called crypto IRAs, but you should keep in mind that crypto IRAs usually have more expensive fees than other, more traditional IRAs. Once you have it added to your IRA, watch the funds flourish and fluctuate over time until you’re ready to retire, then you can cash it out as cryptocurrency to be used as such or to be traded for U.S. dollars.
